10 May 2011

In an otherwise moribund economy, recent years have witnessed one area of runaway growth: the creation of quirky acronyms to describe the next hotspots of emerging world development.

Alongside the market-leading Brics, the Next 11 and the Seven Percent Club have been among the more coherent and less annoying. Others have owed more to snappy phrasemaking than a well-conceptualised outlook on economic history and what it tells us about new markets.

Step forward Willem Buiter. Rather than drawing up a ragbag of frontier growth prospects, the Citibank chief economist has created a development model and ranked leading states by index positions.

His index – Bangladesh, China, Egypt, India, Indonesia, Iraq, Mongolia, Nigeria, Philippines, Sri Lanka and Vietnam lead it up to 2050 and compares predicted GDP data versus the past 10 years of growth.

While it does have a brand name, the 3G Index (or global growth generators) has a more diligent rationale underpinning it than some other attempts to sell the next sources of growth.

‘We don’t want 3G to join the list of patronising acronyms or even the list of cute but uninformative and pointless ones (although at one point we flirted with an intriguing/confusing label like the Magnificent Seven, the Nine Nazgûl or the 39 Steps),’ said Buiter. ‘Instead, we view it as a question. What are the generators of global growth and profitable investment opportunities or the next 40 years?’

Working from a baseline prediction of purchasing power adjusted GDP growth rates, inflation and market exchange rates for 85 countries over the next 40 years, supplied by 50 economists, Buiter and his colleague Ebrahim Rahbari compared these to the recent past.

Two Brics excluded‘There are several reasons why two of the Brics, Brazil and Russia, are not in the 3G category,’ said Buiter. ‘One is that they are significantly richer than the 3G countries. A lot of catch-up has already occurred and most of the low-hanging fruit is gone.

‘The second reason is their low investment rates. The third is that, for the later stages of the convergence process, the quality of institutions and policies matters more than for the early stages. Brazil and Russia especially have material weaknesses in the quality of their key economic institutions and policies, which limit their growth prospects.’

He stressed the aim had been to create a replicable and consistent model of projected development rather than pick a series of growth prospects. In particular, asset price fluctuation remains a wildcard risk, particularly in the highly political and sensitive food supplies, as do sustainability issues. On the upside, North Korea, Cuba, Iran, Myanmar, Venezuela and Argentina could all very conceivably face transformative institutional change.

'The growth we are predicting will either be “green” and sustainable or it won’t occur. It is therefore encouraging that the main driver of environmental degradation and excessive natural resource use – population growth – is expected to peter out,’ Buiter said.

‘Global GDP growth will mainly be driven by growth in GDP per capita, especially in the later decades.’

5 comments:

Anonymous
said...

Emerging Markets will carry the World this time just as old industrial powers did sometime back. That way, Willem Buiter is right in his assessment of remarkable, if not, key, players of this 3G growth group. We are now living a watershed period that is quite remarkable for its fast-paced change, and growth. Where will it end? No one can say for certain, yet!

A word of caution. It's okay to be optimistic about the growth rate of these 3G Index countries as old economies are crawling. However, no one should forget that these are "new" countries -- emerging economies-- with lots of regulatory, structural adjustments to be made. All will be decided on how well they would be able to balance growth and social development.

Thank you for this fresh approach. I agree for Brazil and Russia. On the upside, it would be of tremendous interest if we could read projections related to some of the hypothetical growth economies listed, i.e. Cuba, Iran, Myanmar (ex-Burma), North Korea, Venezuela, if (IF written only in capital letters !) any of these countries turn "politically correct" again. Does anyone (inside or outside CIA) have these potential projections ? Keep in mind : the world is changing very rapidly !

One never knows. After all there was a world of difference between the "communist" China and "capitalist" China when it awakened to the possibilities. Likewise, no one can guess the outcome if the sleeping tigers of today decide to get up tomorrow. But one thing is clear - government controls and too much of regulations could smother best of intentions. That way, no one can say a bit of authoritarianism would not be a plus!

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